Tribune Co. cites broad board support for buyback

DavidB. Wilkerson

CHICAGO (MarketWatch) - Tribune Co., responding to press coverage about the Chandler Trust's opposition to its plan to buy back up to 75 million shares of its stock, said Thursday that the repurchase program was "approved by a clear majority" of its board of directors.

In a filing with the Securities and Exchange Commission late Tuesday, Tribune Co.
TRB, +0.00%
said that eight directors approved the newspaper publisher's buyback but that Jeffrey Chandler, Roger Goodan and William Stinehart Jr. of the Chandler Trusts dissented.

The Chandler Trusts own 12.2% of Tribune Co.'s outstanding shares, the filing said.

"As has been our long-standing policy, we will continue to decline comment on private board discussions," Tribune said Thursday.

A Wall Street Journal article published Wednesday indicated that the Chandler family's objections could lead other shareholders to question Tribune Co.'s strategy.

The Journal reported in its Thursday editions that Tribune Co.'s board has been considering spinning off of its broadcasting division, which includes the TV "superstation" WGN, in a move that could lead to a sale of the entire company. See Wall Street Journal story (subscription required).

Tribune Co. owns such newspapers as the Chicago Tribune, Newsday, the Los Angeles Times and the Baltimore Sun. It also owns 26 television stations and the Chicago Cubs baseball team, among other properties.

The company said last month that it expects to sell at least $500 million in certain broadcasting and publishing assets outside of its top three markets. This week, it began that process with the sale of an Atlanta TV station to Gannett Co.
GCI, -1.09%
for $180 million. See story.

There's at least a 50-50 chance that Tribune Co. could be sold, says Ed Atorino, an analyst at Benchmark & Co.

Atorino says that it makes sense for Tribune Co. to sell off the broadcast properties separately from its newspapers, so that potential buyers wouldn't be stymied by current federal rules that prohibit the ownership of a newspaper and a broadcast station in the same market. The company owns both a newspaper and a TV station in the Chicago, Los Angeles, New York amd Hartford, Conn., markets.

"If you sell the broadcast business, you eliminate those regulatory hurdles," Atorino said.

Newspaper publisher Knight Ridder's recent sale to McClatchy Co.
MNI, -2.95%
was driven by Knight Ridder's two largest institutional shareholders, who demanded that the company
KRI, -1.99%
do something to lift its flagging stock price. Tribune Co. may now be facing similar pressures.

Multitude of problems

Newspaper companies have been hampered by several factors for the past two to three years. A choppy advertising environment has weakened revenue, along with a steady decline in circulation as more readers get their news online. The do-not-call registry, implemented in 2003, has made it difficult for newspapers to solicit new readers. Meanwhile, newsprint prices keep rising.

However, investors seem to be missing the bigger picture, says John Morton, a newspaper analyst.

"Unfortunately, they don't understand the Internet impact very well," Morton said. "Internet advertising revenues at these papers are growing 30% or more at all of these companies. And it's highly profitable revenue, much more so than newspaper print advertising revenue [due to lower overhead costs]. And in the future, it's going to be what makes newspapers able to show continued earnings growth, and eventually the stock prices will recover."

Atorino says that although a shareholder revolt trend seems to be brewing at newspaper companies, it must be remembered that many of them -- Belo Corp.
BLC, +0.00%
Dow Jones & Co.
DJ
New York Times Co.
NYT, -0.83%
Media General
MEG, +0.86%
and others -- have family-controlled voting structures that prevent other shareholders from forcing sales. "But you could see a process of consolidation here," he said.

As for Tribune, says Atorino, it's unlikely that any sale would materialize until sometime in 2007.

Tribune Co. said May 30 that it would buy back up to 75 million common shares, worth about $2 billion. Up to 53 million of the shares could be repurchased using a Dutch-auction tender offer, under which stockholders can tender some or all of their holdings at a price in the range of $28 and $32.50 each. See full story.

The company plans to fund repurchases through bank debt and publicly sold bonds.

After the offer is completed, the company's principal shareholders -- McCormick Tribune Foundation and Cantigny Foundation -- have agreed to sell 10 million shares to Tribune Co.. a deal subject to adjustment depending on how many shares are tendered. It's also contingent on Tribune Co. buying back at least 30 million shares in the tender.

Tribune Co. stock rose $1.27, or 4.2%, to close at $31.58 on Thursday.

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